FTC Clears Proposed Merger of Dominion Resources and Consolidated Natural Gas

The Federal Trade Commission has accepted a proposed consent agreement that would allow Dominion Resources, Inc. to acquire Consolidated Natural Gas Company (CNG), provided that Dominion divest CNG's subsidiary Virginia Natural Gas, Inc. (VNG) to alleviate the anticompetitive effects that would result from the merger of the two companies. Dominion, through its subsidiary Virginia Power, accounts for more than 70 percent of all electric power generation capacity in the Commonwealth of Virginia, and CNG, through its ownership of VNG, is the primary distributor of natural gas in southeastern Virginia. The proposed acquisition is valued at approximately $5.3 billion.

Richard G. Parker, Director of the FTC's Bureau of Competition said, "This agreement once again demonstrates that the Commission is dedicated to looking out for the best interests of consumers, whether the companies involved sell computers, cars, or energy. The market for the generation of electric power in southeastern Virginia is highly concentrated, and the agreement will allow for entry into this marketplace by other potential competitors." He noted that Virginia, following the lead of other states such as Pennsylvania and Massachusetts, will begin the process of electric utility deregulation on January 1, 2002. Currently, the generation of electric power within the Commonwealth of Virginia is regulated by the Virginia State Corporation Commission and the Federal Energy Regulatory Commission.

According to the Commission's complaint, the proposed merger would combine the dominant provider of electric power in Virginia with the primary distributor of natural gas in southeastern Virginia. The complaint also alleges that entry into the electric power generation market in southeastern Virginia by companies unaffiliated with Dominion may be deterred because of Dominion's control over VNG. Such control would likely deter or disadvantage new entry into the marketplace, as Dominion could exercise unilateral market power to raise the cost of entry and production or otherwise gain a competitive advantage, ultimately resulting in an increased likelihood that consumers would be forced to pay higher prices for electric energy.

The market for the delivery of natural gas in southeastern Virginia is also characterized by high barriers to entry. According to the FTC's complaint, it would be both costly and time-consuming for other natural gas transportation companies to extend pipelines from their existing network to southeastern Virginia. In addition, other pipelines near the area lack sufficient excess capacity to support a new pipeline in southeastern Virginia, while VNG has substantial excess capacity. Accordingly, the Commission contends that new entry into the natural gas marketplace is unlikely to deter or counteract the anticompetitive effects of the transaction.

Under the terms of the proposed consent agreement, these anticompetitive effects would be remedied through Dominion's divestiture of VNG in accordance with the stipulation entered into between Dominion, CNG, and the staff of the Virginia State Corporation Commission (Case No. PUA990020). Under the stipulation, Dominion would have one year to divest VNG. Under the FTC's proposed order, any acquirer of VNG would be subject to the Commission's approval. If Dominion is unable to find a suitable purchaser, the stipulation requires Dominion to spin off VNG to its shareholders. The FTC's proposed consent agreement would also prohibit any Dominion shareholder from receiving more than five percent of the voting shares of VNG.

In addition, the proposed consent agreement would entail the issuance of an Order to Hold Separate that seeks to ensure that VNG remain a viable, independent competitor. Under this order, until VNG is divested, Dominion and CNG would continue to provide services to VNG that they are currently providing. Also under this order, the FTC may appoint an independent auditor to monitor Dominion's and CNG's compliance with their obligations to hold VNG separate and independent.

A summary of the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment until December 7, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

The Commission vote to accept the proposed consent agreement was 4-0.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint, proposed consent agreement, and an analysis of the proposed consent order to aid public comment, are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 991-0244)